143 S.W.3d 452 (Tex.App. - Austin 2004), 03-03-00577, Trilogy Software, Inc. v. Callidus Software, Inc.

Docket Nº:03-03-00577-CV.
Citation:143 S.W.3d 452
Party Name:TRILOGY SOFTWARE, INC., Appellant, v. CALLIDUS SOFTWARE, INC. and Yinghui Liu, Appellees.
Case Date:August 12, 2004
Court:Court of Appeals of Texas

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143 S.W.3d 452 (Tex.App.—Austin 2004)



CALLIDUS SOFTWARE, INC. and Yinghui Liu, Appellees.

No. 03-03-00577-CV.

Court of Appeals of Texas, Third District, Austin.

August 12, 2004

Rehearing Overruled Sept. 30, 2004.

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[Copyrighted Material Omitted]

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Peter J. Ayers, Judith L. Pace and Lewis T. LeClair, McKool Smith PC, Dallas, for appellant.

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David P. Blanke, Spikes Kangerga, Jason S. Boulette and Michael J. Golden, Vinson & Elkins, L.L.P., Austin, for Callidus.

B. Craig Deats, Deats & Levy, PC, Austin, for Yinghui Lui.

Before Justices KIDD, B.A. SMITH and PEMBERTON.



This is an intellectual property case that arose after appellee Yinghui Liu, who formerly worked for appellant Trilogy Software, Inc., went to work for appellee Callidus Software, Inc., one of Trilogy's competitors. Trilogy filed a lawsuit alleging that Liu breached non-competition and non-disclosure agreements with Trilogy and that Callidus tortiously interfered with those agreements. Trilogy also alleged that both Callidus and Liu misappropriated Trilogy's trade secrets. The trial court granted summary judgment in favor of Callidus and Liu as to all of Trilogy's claims. We affirm in part and reverse and remand in part.


Trilogy, a software company, hired Liu, a computer programmer, in 1999. On his first day of work, Trilogy asked Liu to sign a Proprietary Information Agreement (PIA). The agreement was prefaced with the clause, "In connection with my employment by Trilogy Software, Inc., I agree to the following," followed by sixteen numbered paragraphs. Paragraph one set forth several prohibitions against Liu's use or disclosure of Trilogy's proprietary information (hereinafter, the "non-disclosure agreement"):

Proprietary Information. I understand that my work as an employee of Trilogy will involve access to and creation of confidential (including trade secrets) and proprietary information (collectively "Proprietary Information"). I agree to keep all Proprietary Information in trust for the benefit of Trilogy. I will never use any Proprietary Information, except as required by my duties to Trilogy. I understand that this prohibition prevents me from discussing Proprietary Information, even in general terms, with persons outside Trilogy.

"Proprietary Information" means information, ideas, and materials of or about Trilogy or its affiliates, employees, customers or others with whom Trilogy conducts business. Proprietary Information that is not generally known to the software industry or the public is confidential and I agree to exercise diligence at all times to maintain the confidentiality of all confidential Proprietary Information and not disclose confidential Proprietary Information. I understand that my obligation to keep Proprietary Information strictly confidential shall survive the termination of my employment and/or this agreement.

Proprietary Information includes, without limitation, information, ideas or material of a technical nature such as research and development results, software design and specifications, source and object code, training and training materials, invention disclosures, patent applications and other materials and concepts relating to Trilogy's products and processes. Proprietary Information also includes information, ideas, or materials of a business nature such as non-public financial information; information relating to profits, costs, marketing, strategy, purchasing, sales, customers, suppliers, contract terms, employees, and salaries, product development plans; business and financial

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plans and forecasts, and marketing and sales plans and forecasts.

Paragraph four of the PIA set forth various restrictions against Liu competing with Trilogy (hereinafter, the "non-compete agreement"):

Competing Business. ... In consideration of Trilogy's agreement to provide such Proprietary Information and such specialized training to me and my receipt of such Proprietary Information and training, and in the recognition of the value of such Proprietary Information and training to Trilogy, I agree that I will not, during and for a period of 24 months (if terminated without cause, then for a period of 12 months) following termination of my employment by Trilogy ... [or] on my own behalf ... engage in or render services to any person or entity engaged in any business in which Trilogy ... is engaged, in any county or parish of any state in the United States or in any country or political subdivision of the world in which Trilogy ... conducts such business.

Other provisions of note included paragraph five, which required Liu to immediately return all property belonging to Trilogy and all material containing Proprietary Information upon termination of his employment or "at any time it so requests." Finally, paragraph fifteen provided:

General. This is not an employment contract. Unless otherwise provided in an Employment Agreement between you and Trilogy, I understand that my employment is "at will" and nothing set forth in this Agreement shall prevent or limit my right to terminate my employment any time with or without notice, and Trilogy may terminate my employment at any time and for any reason without notice.

Liu signed the agreement on November 15, 1999. The PIA did not contain a blank in which a Trilogy representative could sign the agreement, and no one from Trilogy signed it. It is undisputed that later that same day, Trilogy gave Liu access to Proprietary Information and training.

While at Trilogy, Liu worked as a technical consultant who customized versions of a Trilogy data management software product, DMS, for use by various insurance companies. One of those insurance companies was Aetna. Liu's work involved customizing a version of DMS to address Aetna's unique business needs relating to its agent compensation system. 1 This task required Liu to both write new software and to identify functionality within the then-existing versions of DMS that could satisfy the requirements. Liu also developed a project plan to move certain aspects of Aetna's compensation scheme to a more advanced version of DMS. Liu was the primary contact for Aetna with regard to the technical aspects of Trilogy's work.

In December 2002, Callidus contacted Liu to inquire about the possibility of him working for Callidus. Although Liu responded by e-mailing a resume and discussing the opportunity, Liu told Callidus that he was not interested in leaving Trilogy. On January 17, 2003, however, Trilogy informed Liu that he would be laid off due to lack of work, and did so on January 21, 2003, although Liu remained on the payroll until February 21. Trilogy prepared an "Employment Separation Agreement" (ESA) wherein it provided Liu with one month salary and allowed him to remain

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on the payroll for that month in the interest of preserving Liu's immigration status. The Agreement also provided: "You agree to continue to comply with the terms of any non-competition and non-disclosure/confidentiality agreement...." The original PIA was stapled to the back of the Separation Agreement. Liu signed the ESA on February 10, 2003.

Upon being notified that he would be laid off, Liu sent out his resume to a number of companies, including Callidus, Aetna, and Accenture, which provided consulting services to Aetna. Callidus hired him in early February 2003. Callidus is a software company offering compensation management software, TrueComp, that competed with Trilogy's DMS. The summary judgment record indicates that Callidus was attracted to Liu because of his "formidable technical and domain strengths" and hired him with an eye to deploy him in the company's effort to win Aetna's business.

Having learned of Callidus's employment of Liu, Trilogy filed this suit on February 28, 2003. It asserted the following claims against Liu:

· Breach of his non-disclosure agreement with Trilogy;

· Breach of his non-compete agreement with Trilogy;

· Misappropriation and "inevitable disclosure" of Trilogy's trade secrets.

Against Callidus, Trilogy asserted the following claims:

· Tortious interference with Trilogy's contractual rights under its confidentiality and non-compete agreements with Liu;

· Misappropriation and "inevitable disclosure" of Trilogy's trade secrets.

Trilogy sought both damages and injunctive relief, as well as expedited discovery. On the same day, the district court issued a temporary restraining order prohibiting Liu and Callidus from using or disclosing Trilogy trade secrets or confidential information, soliciting certain customers of Trilogy, or destroying any information relating to Trilogy trade secrets, confidential information, or Trilogy products. However, the court refused to enforce the non-compete agreement. This temporary restraining order was later extended by agreement of the parties.

In March of 2003, Callidus won the Aetna account from Trilogy, and the "Aetna project" whereby Callidus was to implement software to manage Aetna's agent compensation system was scheduled to begin in mid-April. Although there is no evidence that Liu was involved in the sales effort to win this account, a team from Accenture involved with the planning for the project requested his assistance. One of the Accenture employees on the project was Saied Karamooz, the same Accenture consultant with whom Liu had worked on Aetna matters while at Trilogy.

Liu explained in his deposition that the team drew "a very clear line" whereby he would not be asked to divulge "anything which has anything to do with Trilogy software implementation." However, on March 10, Liu received an e-mail from one of the...

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